Iain Butler, R&D Director at Buzzacott, answers the common questions that businesses developing software ask about R&D tax credits.

What types of software development might qualify for R&D tax credits?

Our clients have successfully claimed for projects involving:

• Design and development of new modules within a pre-existing trading platform

• Design of a cloud solution to hold highly confidential data

• Development of an open banking solution

• Development of improvements to an e-commerce platform

• Mathematical modelling development to improve business predictive capability

• Resolving technical issues related to the implementation of a platform into a customer site

As every project is different, we recommend an initial conversation with one of our advisors who can help assess your claim. But also, projects change over time and qualifying spend can increase and decrease with the nature of the work being undertaken. Therefore, we work with our clients throughout the development lifecycle to ensure they submit a robust, supportable claim.

Our website is amazing and cost a lot to develop, can we claim?

Across the board, companies are developing websites to support their trade and we often get asked whether the work qualifies for R&D tax relief. The answer is this: it depends.

Buying off the shelf solutions such as Shopify and building business integrations with readily available tools typically won’t qualify. Likewise, customising the themes and workflows to be brand specific won’t qualify.

Often, the qualifying work is driven by requirements to enhance and expand the current capabilities of the off the shelf solution. For example, if you’ve had to build your own communication layers and integrations tools to accommodate data flows. You also may have built novel techniques to allow scalability in your system to cope at high loading times.

Similar tests can be applied to app developments that may have been built using open-source code or customisation tools. HMRC is concerned the boundaries to eligibility are unclear in these projects and will subject claims in this area to detailed scrutiny.

We’ve picked up the innovation, so we have our R&D claim covered. Why do we need to review our claim again?

The R&D tax credit scheme is designed to cover the actual cost of undertaking qualifying activity. HMRC recognise this often includes activity outside of direct development. Some commonly missed activities include:

• Development of testing tools and scripts

• Significant post-release development (“it’s just DevOps”)

• Supporting activities on development projects (routine data preparation to support systems testing)

• Supporting teams (e.g. product managers, resourcing, finance)

• Also, look out for other qualifying costs such as software licenses, subcontractors or consumables.

If they are considered necessary for resolving the technical uncertainties, both indirect and routine activities are eligible. However, we're seeing a large number of software claims being challenged in HMRC’s compliance checks. HMRC is using the argument that a lot of technological developments, such as AI and Machine Learning, uses known technology. The R&D scheme is constantly changing, and it's important to review if the work undertaken is still qualifying before submitting the claim.

We’ve booked our development work to an intangible asset, and this means we can’t claim.

We see this situation often and this is where having tax specialists that work alongside the R&D team is so important. It’s possible to claim for R&D development booked to intangible assets, but this needs to be assessed carefully. Making a mistake at this point could result in detailed questions from HMRC and the cash benefit being delayed. If you are seeking to claim for capitalised costs, it pays to obtain advise and our team can help you navigate this complex aspect of the R&D tax credit scheme.

How we can help

We're here to support you with preparing and claiming R&D tax credits. Our R&D tax team has extensive experience in preparing architectural and structural design projects. W take time to listen to your business to understand the goal you’re trying to achieve within your projects. This means we can help you identify a lot more qualifying spend than you might expect. If we believe that you will be eligible to qualify for R&D tax credits, we will then proactively manage your claim. Our approach will not only minimise the time incurred by you, but also maximise the chance of you obtaining a successful claim in the shortest possible timeframe.